May 24 2022
At Homewise, we always encourage every home buyer to start the process with a mortgage pre-approval. It saves time, establishes what you can afford from the start, sets a clear shopping budget and it even gives you an edge over your competition in a bidding war. But did you know that a mortgage pre-approval can also trigger a credit check that could potentially lower your credit score? While this isn’t necessarily a reason to shy away from a pre-approval, it’s definitely something to be mindful of before getting started.
Let’s define what a credit score really means.
A credit score is a number given to you based on your repayment history of credit facilities, such as credit cards, lines of credit or auto loans. This three-digit number is important to lenders because it indicates your level of risk and the odds that they’ll get their money back from you as a borrower. Essentially, the higher your credit score, the less risk you pose. Your credit score is a key factor in determining your “creditworthiness” – in other words, your chances of qualifying for a mortgage.
How does a pre-approval affect my credit score?
As part of the pre-approval process, lenders will need to be authorized to review your credit report from a credit bureau. Once this process begins, it will prompt a hard inquiry that signals you’re looking to apply for credit. Each hard inquiry can potentially lower your overall credit score.
A credit check provides details on how the credit score was calculated to help a lender understand the amount of risk they’re taking on if they approve you. As mentioned, a strong credit score is a key determinant of your ability to purchase a home because it shows that you’re financially responsible and able to make your future mortgage payments.
When you apply for a pre-approval at Homewise, you’ll have to authorize our team to access your credit information so that we can begin reaching out to lenders. The good news is that we only need to pull your credit score once and can distribute it to various lenders, which prevents your credit being pulled multiple times and repeatedly lowering your score throughout the process.
Can I prepare my credit score for a pre-approval?
The answer is yes. You can do so by initiating a soft inquiry through your personal bank to check your credit score without penalty. If you notice that it’s on the lower end, you should avoid applying for any new credit in the interim and aim to pay off any debt owing in full each month. Over time, these small steps will significantly impact your score and ultimately get approved for the mortgage you need.
If you’re interested in getting pre-approved now, you can get started with Homewise in just five minutes. Our team will only pull your credit score once and work to get you the best pre-approval from over 30 banks and lenders.
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